Byline: Samantha Conti / With contributions from Courtney Colavita

MILAN — Get out your scorecards.
In what could be the industry’s next blockbuster purchase, Gucci Group appears to be closing in on a deal to buy Valentino. Well-placed industry sources say Gucci is in advanced talks with Valentino’s parent, Holding di Partecipazioni Industriali, and that the price under discussion is approximately $450 million. A deal, they say, could be completed soon.
There’s one hitch, however: It appears HdP wants to sell its entire fashion division, known as GFT Net, to Gucci. GFT Net is the holding company for the Valentino and Joseph Abboud brands and also produces Calvin Klein’s men’s wear — and other lines — under license.
Sources say Gucci, which is on a luxury buying spree, wants Valentino only.
A Gucci spokesman declined to comment. Maurizio Romiti, the chief executive of HdP, denied the company was in talks with anyone for the sale of Valentino or GFT Net.
“There are no contacts — not with Gucci, not with anyone. Don’t ask me to comment on things that are not true,” he said in Paris earlier this week. An HdP spokeswoman said Thursday that the company stood by Romiti’s remarks.
But two sources told WWD they saw a memorandum from HdP saying Valentino and GFT Net were up for sale. A financial source here said fashion is no longer a priority for HdP and that at a recent board meeting, company principals discussed “the transfer of the fashion business outside the group.”
When HdP was formed in 1997, Romiti wanted to build an empire to rival that of LVMH Moet Hennessy Louis Vuitton. Through a complicated series of deals, he had inherited GFT — once Italy’s most powerful and prestigious clothing manufacturer — and in 1998, he purchased Valentino. Romiti paid a whopping $300 million — three times the direct sales of the fashion house and one of the highest multiples in the fashion business at the time.
He said the deal would be the first in a string of acquisitions.
But HdP’s fashion engine never gained momentum. More than three years after that first purchase, the only brands in Romiti’s stable are Valentino and Joseph Abboud. Restructuring costs, not to mention the loss of key licenses from Giorgio Armani, have weighed heavily on GFT’s bottom line. And while Valentino’s sales have increased steadily, net losses continue to grow because HdP is charging the fashion house for the acquisition. Last month, Fila Holding SpA, which also belongs to HdP, announced surprise losses of $65 million.
Further fueling the fire of speculation about a Gucci deal was Giancarlo Giammetti’s front-row appearance at the Yves Saint Laurent show Wednesday. Valentino’s honorary chairman, however, said he wasn’t there to make a statement. “I like and admire Tom [Ford] very much. We’re neighbors; we live across the street from one another in London. When he sent me an invitation to the show, I was glad to accept,” Giammetti told WWD.
Ford, Gucci Group’s creative director, is retooling the image of Yves Saint Laurent, which the group purchased in 1999.
Regarding a possible sale of Valentino, Giammetti said: “Gucci is not talking to me at this moment.” He added that he and Valentino were satisfied with the HdP management and happy with Romiti. “We’re content, we work in peace and we feel like everything’s running smoothly. We’re also happy about our sales, which should reach more than $106 million in 2000.” Revenues will be reported at the end of the month.
Although there is no formal contractual clause, Giammetti suggested that he and Valentino would have to put their stamp of approval on the new owner, if the company is eventually sold. “Keep in mind that we have contracts with this company. But those contracts don’t last forever,” he said.
HdP has repeatedly denied plans to sell its fashion division, despite industry reports that key shareholders were pushing for a sell-off. In February 2000, HdP quashed Italian press reports that said it had given a mandate to Goldman, Sachs to help sell its fashion division. At the time, HdP was in talks to buy Calvin Klein, but that deal was dropped due to the high price tag and tangled web of licenses at the American company.
Sources said it was Gianni Agnelli who led HdP’s shareholders in thwarting Romiti’s plan to buy Klein. Agnelli, Fiat’s honorary chairman, together with top shareholders, is said to have little faith in the fashion business. HdP, quoted on the Italian Bourse, is controlled by a 12-member shareholder syndicate, which holds a 46 percent stake in the company. The three main shareholders are Sicind, which belongs to Fiat; the powerful merchant bank Mediobanca, and Gemina SpA, which is controlled by the Romiti family.
A financial source here said HdP shareholders have not changed their minds about the fashion business since the Klein affair. “If anything, their feelings that HdP should get out of fashion have intensified over the past year,” the source said.
But that hasn’t stopped Romiti from trying to build his group. Last June, GFT Net purchased Joseph Abboud for $65 million. And a day later, Roberto Jorio Fili, the president of Valentino and managing director of GFT Net, said the company planned to invest $82.5 million over the next two years in communication and retailing for Valentino.
“We see an enormous potential in Valentino,” he said.
In January, WWD reported that Calvin Klein was in talks with HdP about an ambitious joint venture involving the CK bridge sportswear collections for men and women. As reported last month, Klein’s manufacturing and retail agreement with Stefanel has ended, and the American company said it would shortly announce a long-term strategy for those collections.
A spokeswoman for HdP would not comment beyond a statement issued in January in response to similar questions, saying, “GFT Net is currently reorganizing the structure of the two companies that oversee the licenses with Calvin Klein: CK Apparel and New Lab SpA.”
But there might be more at play than just the European CK license. One scenario outlined by sources in New York would bring CKI’s domestic men’s and women’s CK sportswear business to GFT Net, while another would incorporate a bigger chunk of the global Calvin Klein apparel business under the HdP umbrella.
It is unclear, however, what would happen to the Klein businesses in the event that GFT Net is sold.
Carlo Pambianco, a fashion and luxury goods consultant here, said Gucci and Valentino would be a sensible match.
“Gucci has the management skills to bring out the huge potential in Valentino. Under Gucci’s management, Valentino could generate $450 million to $900 million in sales over the next three to five years,” said Pambianco.
“In addition, relaunching Valentino would be a lot like relaunching YSL. Both are global brands with a glorious past. And both have a very classic bent. They are both like down-at-the-heels noblemen,” he added.
As for HdP, Pambianco said the company has to decide once and for all whether it wants to build its fashion business or sell it.
Gucci has a war chest of nearly $3 billion earmarked for luxury acquisitions, and it’s no secret that shareholders want to see that money spent as soon as possible. Since Gucci teamed up with its strategic partner Pinault Printemps Redoute in early 1999, it has purchased Yves Saint Laurent, Alexander McQueen, Sergio Rossi, Bottega Veneta, Boucheron, Bedat & Co. and Roger & Gallet.
Gucci is said to be close to signing deals with Stella McCartney and Nicholas Ghesquiere for the launch of their respective signature brands. As reported, it is also said to be interested in the unisex fragrance brand Acqua di Parma and the Swiss jeweler Chopard. Against its $106 million in expected sales, Valentino will post $18.5 million in losses, chiefly because HdP is treating Valentino as a leveraged buyout. In 1999, sales at Valentino grew 6.3 percent to $75.7 million and losses were $22.2 million. In 1998, sales were $71.3 million and losses were $14.2 million. Jorio Fili has said he expects Valentino to be in the black by next year or 2003.
In its restructuring of Valentino, HdP has slashed licenses in a bid to exercise more control over production and image. In what has become a popular strategy among designer houses, Valentino terminated 40 licenses in 2000 alone, reducing the amount of royalty income to 33 percent from 60 percent of sales in 1999. By 2002, the company plans to reduce the royalty figure to 9 percent. HdP has also focused on expanding Valentino’s retail network and launched the men’s and women’s diffusion line Valentino Roma last year.
HdP has had a harder time with GFT Net. Once the jewel in the crown of Italy’s fashion industry, GFT, founded by the Rivetti family, was the engine behind Italy’s fashion boom of the Seventies and Eighties. It was the production and distribution force behind Giorgio Armani, Valentino and Emanuel Ungaro, among others. By 1989, GFT was the world’s largest designer label manufacturer, with sales of $1.07 billion
In 1993, when the go-go spending that had characterized the fashion-hungry Eighties had slowed, the Rivetti family put the company up for sale. A year later, GFT was purchased by Gemina, which then belonged to the Fiat group. After an aborted merger with Marzotto, Gemina’s HPI — the company that later became HdP — was formed with the mandate of creating a luxury group around the core of GFT.
But since 1999, GFT has seen an exodus of its licenses, including those for Giorgio Armani’s Le Collezioni men’s and women’s labels — said to account for the lion’s share of GFT’s income — Emanuel Ungaro, Cerruti Bros. and Antonio Fusco. In 1999, GFT Net’s sales dropped 7.3 percent to $642.6 million, and the company posted a net loss of $78.1 million due to the drop in licensing income and re-structuring costs. This year, sales at GFT Net are expected to drop 15 percent to $533.7 million. HdP stock closed at $3.21, up 8 cents, Thursday.